Plutus Payroll: Corporate Law Violations

This assignment delves into a case study involving Plutus Payroll, where the directors allegedly engaged in illegal practices to evade taxes. It examines how their actions violated established corporate law principles, specifically concerning taxation and payroll deductions. The analysis highlights the potential legal repercussions for the directors and emphasizes the importance of ethical conduct within organizations.

CO5121: LAW OF BUSINESS
ORGANISATIONS
Plutus Payroll and associated
companies case study

Introduction
Plutus payroll is an Australian company which was so far used by larger organizations in
Australia to pay the contractors on roll or to pay the people who were working as freelance
workers. The company (Plutus payroll) on the other hand was owned by Synep in which the son
of deputy tax commissioner (ATO) was both a secretary and director.
(1) The corporate veil
Issue
The issue revolves around the status of the Plutus Payroll as a separate entity.
Rule
The concept of corporate veil was entrenched in the English company law. In the case of
Salomon vs. A Salomon & Co. Ltd (1897) the English upper house has decided that once a
company is formed based on whatever means the company would be regarded for all purpose a
separate entity in the eyes of legal parlance and existence of such an entity can’t be questioned1.
A company established under legal provisions would run as a separate entity different from those
people or members and shareholders who have formed the company and thus a legal entity
would emerge on its own to undertake legal business activities2. However, a company being a
non-natural person -would not be able to run itself and thus it would need the help of natural
persons to run its affairs for all practical purpose. Even though the law allows the judicial person
to own assets in its own name the same would be signed by natural persons acting as directors
etc. on behalf of the company under the seal of the company. As a result, a company can be
capable of suing others for misconduct and other persons dealing with a company can also sue a
company in case of a dispute and misconduct3.
Footnotes:
1. Hannigan, B. (2017). Company Law (4th ed.). London: Oxfrd foundation.
2. Worthington, S. (2016). Sealy & Worthington's Text, Cases, and Materials in Company Law (11th ed.).
Brighton: Oxford University Press.
3. French, D. (2016). Company Law (Thirty-fourth edition ed.). London: Oxford University Press.

Application
In the case of Lee v. Lee’s Air Farming Ltd (1961) the court held that a person can act in dual
capacity if there is a valid and legal contract between the company and the worker concerned and
thus allowed a single person to act as am employee and a director. The gist of the case was that a
company once registered as a company under the relevant provisions of the act would have all
the powers to act as a separate entity for all legally applied purpose4.
Salomon & Co Ltd was a duly registered company under the relevant provisions of Companies
Act 1862 of United Kingdom and form the case the followings have emerged:
(a) a company would have all the rights as natural person in owning its separate properties.
(b) a company would also have the right to incur debts and issue debts in the market on its own
and it would solely be liable for its own debts5.
(c) A company would be allowed to make contracts with employees of the company and
outsiders as well which was reasserted in the case of Lee v. Lee’s Air Farming Ltd (1961).
(d) Because a company is regarded as a separate entity or judicial person it would can commit
crimes and torts.
Conclusion
Thus, it is quite clear that while the ruling in the case of Salomon v. A Salomon & Co. Ltd
(1897) provided the legal sanctity to the companies, the same also provided a legal option of
trying to ascertain if the companies are doing their activities legally or they have engaged
themselves in illegal activities which has been prohibited under provisions of other laws of the
state. If it is ever found that the companies concerned have been engaged in illegal and other
activities which are not endorsed by law the real activities of a company like Plutus payroll can
be checked thoroughly for breach of law6.
Thus, it can be said that Plutus payroll being a registered entity in Australia enjoyed the privilege
of being a corporate entity and thus also enjoyed the concept of separate legal entity as endorsed
in the above case settlements beforehand.
Footnotes:
4. Bredeson, D. A. (2013). Business law and the Legal environment . Chicago: south western Cengage
Learning.
5. Taylor, C. (2016). Company Law - Law Express (4th ed.). london: Pearson Education Limited.
6. Roach, L. (2017). Company law- Guide and Revision (4th ed.). Leicester: Oxford University Press.

(2) Piercing the corporate veil
Issue
The issue is to find whether the corporate veil shall be lifted for the Plutus payroll company to
see the real operations undertaken by the company.
Rule
Thus, a company being considered a separate entity form those who comprises of the same
would have the authority to undertake such actions which would be deemed to be necessary to
run the activities and achieve the goals of the company (Taylor, 2016). However, a company
being a non-natural person (company is regarded as a judicial entity only) would not be able to
run itself and thus it would need the help of natural persons to run its affairs for all practical
purpose. Because the company depends upon the human help, the same can be undertaken with
dubious intentions sometimes and thus it would be necessary in such cases to look beyond the
veil in which the company acts and operates to separate the goals and real activities form each
other. If it is found that the actual activities of the company involve anything which defeats the
purpose of the law then the company can be prosecuted and liquidated (shepherd, 2016). The
lifting of corporate evil can be done in the following cases:
a) The veil of a company can be lifted by the state for protecting revenue of the state. Thus a
company’s veil of being a separate entity can be lifted if its suspected of being used as
means of evading taxes as proved in the case of Adams V Cape Industries Plc ,1990 and
DHN Food Distributors Ltd V Tower Hamlets London Borough,1976.
b) Corporate veil can also be lifted to determine if the company concerned is a case of being
an enemy company which means the company is being run by people who are citizens of
another country which is at war with Australia.
Footnotes
7. Hargovan, J. H. (2014). Australian Corporate Law. Melbourne: Lexis Nexis.
8. Howard, L. (2013). Corporaete law and cases. UNSC LAW Journal, 24(2), 34-42.

c) The corporate veil of the entity can also be lifted to find out if the entity has been
operating in a manner so as to avoid its legal obligations.
d) The corporate veil of the company being a separate entity can be lifted in circumstances
under which it is suspected that the company is being run in a manner to defraud the
respective state and the government in general and is actually sham institution as seen in
the case of Gilford motor co v Horne ltd (1933)9.
Application
Plutus payroll was one of those legitimate payroll companies in Australia which undertook
payroll duties and was used by many larger companies in Australia for paying contractors and
freelance workers. Plutus accepted funds from over a few dozen companies to pay the
contractors of the respective companies. The payments were then transferred to 7 tier 2 or those
companies which were sub-contracted by Plutus. These tier 2 companies then processed the
payments to the concerned contractors. It was found that the tier 2 companies (sub-contracted
companies) were run by people who were acting as directors has very little idea or knew nothing
about these companies. The operations of these companies were run by members of crime
syndicates in Australia10.
These tier two companies were paying the contractors of the client companies these companies
were required to submit the PAYG taxes to the Australian tax office (acting on behalf of the
client companies). The tax authorities found that the tier 2 companies were paying the Australian
tax office only a small portion and deflating and hiding the balance of the due tax. The balance
of the due taxes was cleverly siphoned off by the crime syndicate members to their own accounts
and otherwise for being used for personal gain. Some of the companies which were used to
transfer illegitimate payments were found to be present in the same building and run by fictitious
persons11.
Footnotes
9. Tomasic, R., Bottomley, S., & McQueen, R. (2014). Corporaiton Law in Australia (2nd ed.). Melbourne:
The Federaiton Press.
10. Harris, J. (2015). Company Law: Theories, Principles and Applications (2nd ed.). Sydney: lexis-Nexis.

11. Kraakman, R., & Armour, J. (2017). Anatomy of Corporate LAw-A functional apporach. London:
oxford University press.
Because of this discovery the accounts of the Plutus payroll was suspended by the Australian tax
office and the same caused non-payments complaints from thousands of contractors or freelance
workers engaged in the IT sector. Thousands of complaints later action was taken Australian tax
office which found the son of the deputy tax commissioners involved in running of the company
(Plutus payroll) and working both as a director and employee (secretary)12.
It is believed that a private equity firm SYNEP was the owner of the firm Plutus Payroll and the
company was chaired by Adam Cranston who was found to be the son of ATO deputy
commissioner Michael Cranston. These revelations have brought the questions of law into
operation which must be used to lift the corporate veil surrounding the existence of and
operations of Plutus payroll.
Conclusion
The management of the Plutus payroll have been engaged in the business operations in a manner
which is contrary to the legal provisions of the Australian corporation Act, 2001 ad others and
the activities are believed to have been carried in manner to defraud the Australian government.
There exists enough evidence of suggesting fraudulent activities being carried in the name of a
maze of companies and tier -2 operatives in the name of Plutus payroll company13.
Thus, there is enough reason to believe that Plutus was arranged in the manner which was
discovered has been carried out with sole intention of avoiding paying taxes and enriching
personal coffers of some of these involved in the payment of payroll and those people are the
people who bankrolled Plutus in the first place. Thus, it becomes the duty of the ATO and other
legal departments to lift the veil of the Plutus Payroll and find out how the operations were
carried by the management and under what pretext. The true facts would only emerge only when
the corporate evil is taken off and investigations bring out the true operators behind the
fraudulent behavior14.
Footnotes
12. Croese, J. H. (2016). CORPORATE AND COMMERCIAL LAW (2nd ed.). Melbourne: CCH Austrlalia.
13. Dignam, A., & Lowry, J. (2015). Company Law (9th ed.). London : Oxford university Press .

14. Tomasic, R., Bottomley, S., & McQueen, R. (2014). Corporaiton Law in Australia (2nd ed.).
Melbourne: The Federaiton Press.
(3) Director duties
Issue
The issue is to find out if the directors of the Plutus Payroll acted within legal sanctions.
Rule
Directors of any company would be expected to company with the internal regulations of the
company and exercise their powers only in the direction for which they were authorized.
Directors are in fact stand in a fiduciary position which means the directors can’t use the position
in which they were in for their own benefit Towers v Premier Waste Management Ltd [2011]
and must use the power to make sure they work for the overall benefit of the shareholders and
the employees of the company. Under s180(1) the directors involved must also use due care and
diligence in doing their duty. The same has been established in the case of (ASIC) v Cassimatis
(No. 8) [2016] FCA 1023 where the directors were found to be in breach of their duty to
undertake acts with due care and diligence15.
Application
The directors of Plutus has had the primary duty of paying the payrolls of the contractors on
behalf of tis clients and there is no known reason to know why the same operations were
transferred to the sub-contractors in the first place16.
Conclusion
It was the duty of the Plutus management to oversee the payment operations went on smoothly
and make sure payments are done in a timely manner when they have sub-contracted the
payment work to others. Tax deductions would have been made by Plutus and not the sub-
contractors and the same should have be complied with by the management of the Plutus payroll
itself17. Thus, there is enough reason to believe that the directors of the Plutus payroll violated
established principles and were explicitly involved in diversion of funds with an intention to
avoid payment of taxes18.
Footnotes
15. Armour, J. (2015). Essential Corporate Law. London: oxford University press.

16. Beatty, J. F. (2013). Business Law and Leagal Environment (6th ed.). Newyork: South Western
Cengage Learning.
17. Stephen, B. (2015). Foundations of Taxation Law (5th ed.). Melbourne: CCH Australia Limited.
18. Coleman, K. S. (2016). Principles of taxation law (6th ed.). Pyrmont, N.S.W: Thomson Reuters.
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